Muni Update

May 20, 2019


In this week’s Municipal Market Update, we highlight the following:


Municipal Market Recap

Municipal prices started the week stronger across the curve. On Tuesday municipal prices were steady. On Wednesday municipal prices strengthened across the curve. On Thursday municipal process were mixed as the front-end strengthened, while bonds maturing ten years and longer weakened. On Friday prices were mixed again, as the front-end strengthened, while intermediate maturities were steady and the long-end weakened. Issuance for the week is forecasted to be $5.3B, which is below last week’s revised level of $7.2B in issuance. Still, this week’s projected level of issuance combined with secondary market offerings should provide market participants with a number of opportunities for the trading week, especially given the current strong demand in the municipal market. Driving this strong demand in the municipal market is a combination of high redemption flows and inflows into municipal bond mutual funds, which continues to be strong at this time.

Investors in municipal bond funds put cash into funds for a 19th week, as weekly reporting funds experienced inflows of $1.271B, after experiencing inflows of $1.502B the week prior. The four-week moving average was a positive $1.385B, after being a positive $1.237B the week prior. Investors still facing low rates overseas continue to find higher-yielding U.S. assets attractive, especially since municipal bonds are off to their best start in five years. Municipal securities have been bolstered by low supply and strong demand. All these factors, should have both traditional and non-traditional market participants continuing to look for opportunities in the U.S. municipal market.

Last week the yield on the two-year maturity on the MMD Triple-A Scale fell one basis point (bp) from Thursday to Friday and ended the week at 1.46%. Meanwhile, the yield on the 10-year maturity was unchanged and the yield on the 30-year maturity rose two bps on the MMD Triple-A Scale fell from Thursday to Friday and they ended the week at 1.72% and 2.40%, respectively. Overall, week-over-week the yield on the two-year General Obligation (GO) bond fell seven bps, while the yields on the 10- and 30-year GO bonds each fell three bps.

Last week the yields on the two- and 10-year maturities on the MMA Triple-A Scale were unchanged from Thursday to Friday and they ended the week at 1.48% and 1.93%, respectively. Meanwhile the yield on the 30-year maturity on the MMA Triple-A Scale fell one bp from Thursday to Friday and ended the week at 2.55%. Overall, week-over-week the yield on the two-year GO bond fell two bps, while the yield on the 10-year GO bond fell three bps and the yield on the 30-year GO bond fell five bps.


New Issue Volume is Forecasted to be $5.3B for Trading Week

Total new issuance for the trading week per IHS Markit Ipreo is estimated to be $5.3B, which is below last week’s trading volume of $7.2B in issuance, according to revised data from Refinitiv. This week’s trading calendar is comprised of $4.3B in negotiated offerings and $947.0MM in competitive offerings. There are 19 scheduled deals of $100.0MM or larger this week and they are all negotiated offerings.

The largest deal of the week will come from PEFA Incorporated, Iowa, in the amount of $643.86MM of gas project revenue bonds. The deal is rated A3 by Moody’s Investors Service (Moody’s) and A by Fitch Ratings (Fitch).

On Tuesday the Arkansas Development Finance Authority plans to price $487.0MM of industrial development revenue bonds for the Big River Steel Project. The offering will be rated B3 by Moody’s and B by Standard and Poor’s Global Ratings (S&P). On Thursday North Carolina will price $600.0MM of grant anticipation revenue vehicle bonds. The offering is rated A2 by Moody’s, AA by S&P and A+ by Fitch.


Municipal Bond Funds Post Inflows for a 19th Week

Investors in municipal bond funds put cash into funds for a 19th week, according to the latest data from Lipper. The weekly reporting funds saw inflows of $1.271B in the latest week, after experiencing inflows of $1.502B the week prior. The four-week moving average was a positive $1.385B, after being a positive $1.237B the week prior.

Long-term municipal bond funds had inflows of $726.027MM in the latest week after experiencing inflows of $982.190MM the week prior. Intermediate-term funds had inflows of $517.470MM after inflows of $440.006MM the week prior. National funds had inflows of $1.004B after experiencing inflows of $1.313B the week prior. High-yield municipal funds reported inflows of $396.616MM in the latest week, after inflows of $429.105MM the week prior. Exchange traded funds reported inflows of $19.289MM, after inflows of $237.397MM the week prior.


Demand in the Bank Qualified (BQ) Market Remains Strong

The BQ market continues to see good activity, even with the lower level of new issue supply so far this year, which has contributed to secondary market bid lists being well received. BQ participants continue to have significant demand for municipal paper due in large part to having to replace rolloffs due to redemptions. Larger BQ participants continue to find attractive opportunities, both in size and structure (15+ years) in BQ paper, due in part to the lower tax rates from tax reform and attractive yields. Other market participants continue to find opportunities in both primary offerings and secondary market BQ opportunities, to address their needs. We continue to encourage participants to utilize extension swaps, especially given the strong bids for short paper by retail investors in high tax states, as a way to roll out the curve for more yield with little to no drop-off in credit quality. Finally, we recommend market participants continue to look to unsold balance of deals that have priced in the past several weeks, as a chance to possibly pick up cheaper paper compared to more recent new issue balances and offerings. Week-over-week, bank qualified spreads were wider, with the largest widening occurring in the three- and five-year maturities, nine bps each.


Daily Overview of the General Market for the Week Ending May 17th

Last Monday prices on municipals were stronger, as market participants prepped for the $6.8B of new issue offerings scheduled for the trading week. On the day, the yields on the two- and 10-year GO bonds each fell two bps, while the yield on the 30-year GO bond fell four bps, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasurys strengthened, as U.S. stocks ended the day sharply lower, after China said it will raise tariffs in retaliation to last week’s tariff increase by the United States. The Dow closed down 617 points after falling as much as 719 points earlier in the day. The S&P 500 fell 2.4% and the NASDAQ dropped 3.4%. On the day, the yield on the two-year maturity fell eight bps, while the yield on the 10-year maturity fell seven bps and the yield on the 30-year maturity fell six bps. The 10-year municipal-to-Treasury ratio rose to 72.1% on Monday from last Friday’s level of 70.9%, while the 30-year municipal-to-Treasury ratio rose to   84.5% on Monday from last Friday’s level of 84.1%.

Last Tuesday prices on municipals were steady, as a number of new issue offerings hit the market and they were aggressively priced and oversubscribed. On the day, the yields on the two, 10-, and 30-year GO bonds were unchanged, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasurys weakened, as U.S. stocks opened in positive territory and continued to post gains throughout the session. The Dow was up 0.82%, while the S&P was up 0.80% and the NASDAQ rose 1.14%. On the day, the yields on the two- and 10-year maturities each rose two bps, while the yield on the 30-year maturity rose three bps. The 10-year municipal-to-Treasury ratio fell to 71.5% on Tuesday from Monday’s level of 72.1%, while the 30-year municipal-to-Treasury ratio fell to 83.6% on Tuesday from Monday’s level of 84.5%.

Last Wednesday prices on municipals were stronger, as a number of deals came to a market and went very quickly. Many of the bigger deals saw big bumps from preliminary to final pricing levels. On the day, the yield on the two-year GO bond fell two bps, while the yields on the 10- and 30-year GO bonds each fell three bps, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasurys strengthened, as markets were whipsawed in the morning and late afternoon, but held on to gains to finish positive for the session. On the day, the yields on the two- and 30-year maturities each fell four bps, while the yield on the 10-year maturity fell five bps. The 10-year municipal-to-Treasury ratio bumped up 71.7% on Wednesday from Tuesday’s levels of 71.5%, while the 30-year municipal-to-Treasury ratio bumped up to 83.7% on Wednesday from Tuesday’s level of 83.6%.

Last Thursday prices on municipals were mixed, as the last of the week’s new-issue offerings came to market. On the day, the yield on the two-year GO bond fell two bps, while the yields on the 10- and 30-year GO bonds each rose two bps, according to the final read of the MMD Triple-A Scale.

U.S. Treasury prices also finished mixed, as U.S. Stocks posted gains for a third session in a row. On the day, the yield on the two-year maturity rose four bps, while the yield on the 10-year maturity rose three bps and the yield on the 30-year maturity rose two bps. The 10-year municipal-to-Treasury was unchanged on Thursday from Wednesday’s level of 71.7%, while the 30-year municipal-to-Treasury ratio bumped up to 83.8% on Thursday from Wednesday’s level of 83.7%.

Last Friday, prices on municipals were mixed, as market participants were looking ahead to the coming trading week’s $5.3B in new issue offerings. On the day, the yield on the two-year GO bond fell one bp, while the yield on the 10-year GO bond was steady and the yield on the 30-year GO bond rose two bps, according to the final read of the MMD Triple-A Scale.

U.S. Treasury prices also finished the day mixed, as U.S. stocks fell in the afternoon to close down for the session. On the day, the yield on the two-year maturity was steady, while the yield on the 10-year maturity fell one bp and the yield on the 30-year maturity fell two bps. The 10-year municipal-to-Treasury ratio bumped up to 72.0% on Friday from Thursday’s level of 71.7%, while the 30-year municipal-to-Treasury rose to 85.1% on Friday from Thursday’s level of 83.8%.


Taxable Market






Dennis Porcaro

Senior Vice President, Investment Strategies

Vining Sparks IBG, LP

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